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Question

An insurance company is offering a new policy to its customers.Typically, the policy is bought by a parent or grandparent for achild at the child’s birth. The details of the policy are asfollows: The purchaser (say, the parent) makes the following sixpayments to the insurance company:

First birthday: $ 760

Second birthday: $ 760

Third birthday: $ 860

Fourth birthday: $ 850

Fifth birthday: $ 960

Sixth birthday: $ 950

After the child’s sixth birthday,no more payments are made. When the child reaches age 65, he or shereceives $260,000. The relevant interest rate is 10 percent for thefirst six years and 7 percent for all subsequent years.

Find the future value of thepayments at the child's 65th birthday: Future Value$____________

Solution

xxxxxx:xx xxxx xx find xxx FV xx xxx xxxxxxxx to xxxxxxx with xxx xxxxxxyxxxx xxxxxxxx at xxx 65. xx xxxx xx find xxx value xx xxxxxxxxxxx xx year x first xxxxx xxx xxxxxxxx rate xxxxxxx at xxxxxxxx. xx:&#xxx;&#xxx;

FV1 = $xxx(x.xx)x= $x,xxx.xx&#xxx;&#xxx;xxx =$760(1.10)4 = $1,112.72

  

FV3 =$xxx(x.xx)x = $x,xxx.xx&#xxx;&#xxx;
xxx =$850(1.10)2 = $x,xxx.xx&#xxx;&#xxx;FV5 =$xxx(x.xx)x = $x,xxx.xx
xxxxx xx Yxxx 6 = $1,223.99 +x,xxx.xx + x,xxx.xx + x,xxx.xx + x,xxx.xx + xxxValue xx Year x = $x,xxx.xx&#xxx;&#xxx;
xxxxxxx xxx xx of xxxx lump xxxxx xxx xxxxx&#xxxx;x 65th xxxxxxxy:
xxxxxx xxxxx = $6,515.87(1.07)59 = $352,870.55.

The xxxxxy xx xxx worth xxyxxx; the xxxxxx xxxxx xx the xxxxxxxxxx $352,870.55, xxx xxx xxxxxy contract xxxx pay xxx $xxx,xxx. xxxxxxxxxxx are xxxxx $92,870.55 xxxx xxxx xxx policy xxyxxx.

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